COMMENT: Over the past few years, I’ve inadvertently become a side-line commentator on what will happen at the auction of the houses on the TV3 show The Block NZ, based largely on my view that the show is a metaphor for what’s going on in the (Auckland) property market at any given point in time.
For the benefit of the handful of you who haven’t actually seen the show, The Block NZ is a reality TV series where four couples each renovate a home, which is then sold at the end of the series. The contestants get to pocket any profit from the sale – which is measured by how much above the reserve their house sells for, with TV producers setting the reserve with input from agents and contestants.
I’ve carved out a niche by claiming that the amount of profit made by the contestants on the night of The Block auction should be broadly predictable, based on where the overall market would be expected to be at that particular time. For example, at the 2012 Block auction, which took place just as the Auckland housing market was gaining momentum, the average sale price was $856,250 and the average auction profit was $58,000 per property. By 2016, the average sale price had reached $1,445,520 and the average profit was $245,250.
Using this trend as a guide I accurately picked what would happen at the Block auction in 2017. That was the year in which the market flattened, as predicted, and the average sale price dropped to $1,265,750. This caused the average profit per property on the show to plummet to $16,250 and I remember watching that episode and feeling for the contestants, who couldn’t understand how things had gone so horribly wrong.
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I picked the trend again in 2019, and yet again in 2021 – although we now know that that last auction just managed to catch the tail end of the last boom before the market turned pear shaped in response to higher mortgage interest rates and foolish government changes to the CCCFA, which together almost killed lending for the first half of this year.
Nevertheless, the pattern has endured and, as you can see from the graphs below, that auction prices achieved by Block properties, and the profits made by contestants, have pretty much followed the pattern you would expect if you’ve followed the cycles of the Auckland market.
But are those cycles still relevant? And if they are, will they demonstrate what many believe – that the Auckland market is in decline – or will they show that the market has turned a corner and that the worst of the market jitters are behind us?
The auction for the latest series of The Block was a private event that took place at the end of last month, with the results being aired this Sunday evening. Many eyes will be watching, with interest, to see what happens this year.
If I’m correct, and the behaviour of the property market over the last 10 months has been almost entirely due to nervousness around increasing interest rates and the chilling impact of the CCCFA changes on lending, then I would expect to see a couple of the properties passed in with the other two selling, but producing only small profits for the contestants.
Why? Because, while the worst of the CCCFA changes have now been addressed and the banks are starting to lend again, those tweaks have mostly benefitted first home buyers who were the worst hit by the 2021 changes to the act. These people are unlikely to be potential buyers for the Orewa-based homes in this season’s Block, simply because they’ll be out of their price range.
That leaves owner-occupiers and investors.
Investors are unlikely to be interested because they largely disappeared from the market in 2021 in response to the Government’s anti-Landlord measures and because of the current lack of capital growth in Auckland.
That just leaves owner occupiers – many of whom are still nervous about where mortgage interest rates might go over the next couple of years given the aggressive signals coming out of the Reserve Bank. My continuing view, developed over decades, is that the only thing which has any sustainable impact on house prices is the cost of money, so increased mortgage interest rates will continue to have a dampening effect on house price growth until there is confidence that those rates have stopped rising. House prices may have almost stopped dropping – but it’ll be a while before Auckland prices start going up, again, in any sustainable way.
For all of these reasons, I’m not holding my breath for big profits on Sunday night – but for the sake of the contestants, I hope I’m wrong.
- Ashley Church is a property commentator for OneRoof.co.nz and a real estate business owner. Email him at [email protected]
